The head fake

Close, but no cigar. The geniuses running the US central bank have erred on the side of caution, delaying that inevitable first interest rate hike in a decade for another month. The new D-date is now Wednesday, October 28th. We got all hormonal for nothing.

The howling skeptics who say rates will never rise again feel vindicated. But the Fed says… not so fast. This is still a done deal and nobody should expecting otherwise. In order to head off inflationary urges and bigger asset bubbles, the US will still be jacking the cost of money. But chief central banker Janet Yellen has turned out to be one cautious woman.

Remember – when the Fed starts this process, it will be an extended one. There’s never been this long a period of rate stability, of zero interest costs or such central banker patience. So when the tightening begins, it will carry on for at least a couple of years – until 0% now turns into something north of 3% in 2017.

The last time US rates started to hike (the summer of 2004) inflation was almost 3% and 66% of the population was working or looking for work. Today inflation is less than half a percentage point and 63% of Americans are employed. Obviously it’s take a lot longer than anyone expected to clear away the rubble from the financial meltdown and credit crisis of 2008-9.

Nonetheless, we’re almost there. The US is growing robustly and employment is swelling fast. The contrast with Canada, now leaning dangerously left politically, is stark. Some tough days lie ahead for the dollar, the oil patch, and anyone who doesn’t use the next four weeks to lock in their mortgage.